‘Giving while living’ is taking over from the traditional inheritance model

29th April 2015


More people are trying to pass on money and assets to their children while they are still alive instead of leaving an inheritance, a new study reveals.

The research by HSBC suggests that traditional inheritance may be dying out and many are compromising their retirement plans in order to make substantial gifts during their lifetime.

More than half (58%) of working-age people in the UK expect to leave an inheritance to their children, but the reality is very different, with just a third (33%) having actually received one.

Instead, the bank’s report, The Future of Retirement, Choices for Later Life, reveals many are opting for a  ‘living inheritance. Half of retirees (50%) are providing regular financial support to their family and friends. In particular, it found that wealth is being passed down the generations, with 19% of retirees regularly giving to grown-up children, and almost one in ten (9%) doing the same for their grandchildren.

The future looks bleak for traditional inheritance, as a quarter (26%) of working-age people say that it is better to spend all your money and create your own wealth, while just 5% say that it’s better to save as much money as possible to pass onto the next generation.

Around one in five (22%) retirees are worried about not being able to support family or friends financially, or of being reliant on family or friends for financial support (18%). Furthermore, the research found that 53% of retirees have been unable to realise at least one of their hopes since retiring, a potential consequence of ‘giving while living’.

Working-age people may still have unrealistic expectations when it comes to receiving an inheritance. More than half (54%) of those who expect to receive an inheritance in the future say it will help fund their retirement, whilst 15% say it will completely or largely fund it.

Caroline Connellan, head of wealth at HSBC, says: “This report shows that withdrawals from the bank of mum and dad may actually be affecting the standard of living of many retirees. New pension freedoms have made savings more accessible, but people should carefully consider the right balance between helping their family and making sure they have sufficient income through retirement.

“It also shows working-age people shouldn’t pin their hopes on funding retirement with an inheritance. It’s more important than ever that people of all ages make plans about how they’ll fund their retirement, so they can live the lifestyle they want to. Many will benefit from seeking financial planning advice when making these decisions.

“Even the smallest amount saved today can contribute towards the lifestyle you want in retirement and the legacy you hope to leave. Those who fail to plan may find that any kind of inheritance is not only unlikely but also that a comfortable retirement is beyond reach.”

Tom McPhail, head of pensions research at Hargreaves Lansdown, says:“The present generation of retirees has enjoyed a fairly generous system, including widespread final salary schemes and generous tax breaks. This is all changing; investors have more freedom but also greater responsibility to manage their retirement savings prudently. Increasing life expectancy and the looming risk of later life care costs mean that those retiring today should think very carefully about how and when they choose to draw on their retirement savings.

“For most people, it would make sense to pass on wealth in retirement only after taking sensible steps to secure financial security for the rest of your life. This could mean buying an annuity with at least part of your pension pot.

“In research conducted (by Hargreaves Lansdown) since 6 April, we have also found nearly one third of investors (29.8%) have said they intend to hold money in a pension as a tax-efficient way to pass money on after their death. We also found that nearly 2/3rds (61.5%) only plan to draw on their pension when they come to stop working.”

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